When Is an Employee Benefit Plan Audit Required?

If you sponsor a retirement plan, one question eventually surfaces: 

Do we need an audit this year? 

For many organizations, the answer changes as the workforce grows. What begins as a small plan can quietly cross a regulatory threshold that triggers new filing obligations and audit requirements. 

Understanding employee benefit plan audit requirements helps you avoid rejected filings, Department of Labor (DOL) correspondence, and unnecessary penalties. These audit requirements are directly tied to your Form 5500 filing status and the number of eligible participants in your plan at the beginning of the year. 

If you’re also looking for broader guidance on compliance and preparation, see our 401(k) Compliance & Audit Guide for Plan Sponsors for a more detailed overview of ongoing responsibilities. 

This article focuses specifically on when an audit is required for retirement plans such as 401(k), 403(b), profit sharing, and defined benefit plans. 

What Is an Employee Benefit Plan Audit? 

An employee benefit plan audit is an independent examination of a retirement plan’s financial statements and compliance with applicable ERISA and IRS rules. 

A qualified, independent CPA firm must perform the audit and attach the auditor’s report to the plan’s Form 5500 filing when required. 

Form 5500 is the annual return that retirement plans file to disclose financial condition, operations, and compliance information to federal regulators. The DOL provides an overview of the Form 5500 Series, while the IRS explains filing requirements and related guidance in its Form 5500 Corner. 

Auditors review: 

• Participant data 
• Contributions and distributions 
• Plan financial statements 
• Internal controls 
• Compliance with plan documents 
• Required disclosures 

Many large plans qualify for what is commonly called a limited-scope audit (technically grounded in ERISA section 103(a)(3)(C)), where certain investment information is certified by the plan’s custodian. This concept is rooted in ERISA itself. 

The goal is to provide reasonable assurance that the plan is administered properly and reported accurately. 

The 100-Participant Rule: The Primary Audit Trigger 

Most retirement plans must obtain an audit once they have 100 or more eligible participants at the beginning of the plan year. 

This is known as the “large plan” threshold. 

If your plan crosses this threshold, it generally must: 

• File Form 5500 as a large plan 
• Include audited financial statements 
• Attach the independent auditor’s report 

The DOL’s Form 5500 resources and instructions outline small versus large plan status and when an accountant’s report is required. 

Many sponsors are surprised by this trigger because participation can increase gradually. Hiring growth, expanded eligibility, or terminated employees retaining balances can push a plan over the threshold. 

These rules form the foundation of most 401(k) audit requirements. 

Understanding the 80–120 Participant Rule 

ERISA provides a transition rule that offers limited flexibility. 

If your plan has between 80 and 120 participants at the beginning of the plan year, you may file the same way you filed in the prior year. 

For example: 

• If you filed as a small plan last year and now have 105 participants, you may continue filing as a small plan this year. 
• If you filed as a large plan last year and now have 95 participants, you may still need to file as a large plan. 

Once your plan exceeds 120 participants, that flexibility ends. 

The transition rule is explained in the DOL’s Forms and Filing Instructions hub, with the specific 80–120 rule language included in the Form 5500 instructions. 

Because the rule depends on prior-year filing status, accurate historical records matter. 

How Do You Count Participants for Audit Purposes? 

Participant counting is one of the most misunderstood aspects of employee benefit plan audit requirements. 

You must count: 

• Employees eligible to participate, even if they do not contribute 
• Employees who elected not to participate 
• Terminated employees with account balances 
• Retirees with account balances 

You generally do not count: 

• Employees who are not yet eligible 
• Employees who terminated employment and fully distributed their accounts 

A common mistake is overlooking former employees with small balances. Those individuals still count. That oversight alone can change filing status and trigger a required audit. 

If your plan is close to the threshold, confirm your participant count with your recordkeeper before year-end. 

You may also find our 401(k) Compliance Checklist helpful when reviewing plan governance and documentation practices. 

Which Plans Require an Audit? 

The audit requirement most often applies to: 

• 401(k) plans 
• 403(b) plans 
• Profit sharing plans 
• Defined benefit (pension) plans 

Certain one-participant plans and some small unfunded welfare plans may qualify for different filing treatment or exemptions depending on structure and funding status. Filing categories and exemptions are outlined in the DOL’s Form 5500 resources. When in doubt, confirm rather than assume. 

What Happens If an Audit Is Required but Not Filed? 

Failing to include a required audit with Form 5500 can result in: 

• DOL correspondence 
• Rejected or incomplete filings 
• Late filing penalties 
• Increased regulatory scrutiny 

The Department of Labor can assess penalties for incomplete or late Form 5500 filings. Penalty details and compliance assistance are outlined on the DOL’s Form 5500 page, and the Form 5500 instructions include additional information on penalties and delinquent filer correction programs such as DFVC. 

It is far easier to confirm your audit requirement before the filing deadline than to correct a filing afterward. A brief eligibility review early in the plan year can prevent significant disruption, additional costs, and regulatory stress later. 

Other Situations That Could Increase Scrutiny 

Although the 100-participant rule is the primary audit trigger, regulatory scrutiny may be prompted by specific compliance issues: 

• Delayed Form 5500 submissions 
• Significant participant complaints 
• Late employee contribution remittance 
• Inconsistent financial reporting 
• Previous audit results that weren’t fixed 

The Department of Labor outlines filing obligations, compliance responsibilities, and penalty considerations in its Form 5500 resources. 

These situations do not automatically require an audit outside the standard threshold, but they can increase regulatory risk and lead to closer review. If any apply to your plan, consulting an experienced audit firm may help evaluate exposure and strengthen documentation — even if the plan is currently below the 100-participant threshold. 

Key Signs Your Plan May Soon Require an Audit 

Even if you are not at 100 participants today, certain trends suggest you are approaching the threshold: 

• Steady hiring growth 
• Expanded eligibility rules 
• Mergers or acquisitions 
• Retention of terminated employees with balances 
• Automatic enrollment increasing participation 

Many sponsors discover they have crossed the threshold after the plan year has already begun. 

Monitoring participant counts quarterly helps prevent surprises. 

What to Do If Your Plan Is Near the Threshold 

If your plan has between 80 and 110 participants, now is the time to plan ahead. 

Consider: 

• Confirming your participant count with your recordkeeper 
• Reviewing prior Form 5500 filing status 
• Engaging an audit firm early 
• Preparing documentation in advance 
• Evaluating internal controls 

Most sponsors engage an auditor several months before the Form 5500 deadline to avoid time pressure and incomplete filings. 

For broader guidance on compliance and preparation, see our 401(k) Compliance & Audit Guide for Plan Sponsors. 

How an Audit Benefits Plan Sponsors 

Although audits are a regulatory requirement, they also provide practical value. 

A well-executed audit can: 

• Identify internal control weaknesses 
• Improve documentation practices 
• Strengthen fiduciary oversight 
• Increase confidence in reporting accuracy 
• Reduce the likelihood of regulatory penalties 

Many sponsors view their first audit as an administrative burden. With planning and structure, it becomes a predictable, organized annual process. 

Final Thoughts 

Audit obligations are not always obvious. Your filing obligations can change quickly if your workforce grows, more people become eligible, or you forget about past employees. 

Knowing your employee benefit plan audit requirements allows you to plan, document, and hire an independent audit company before deadlines. 

If you’re not sure if your plan needs to be audited this year, our team can look at the number of participants and help you make a decision. 

Preparing for Your First Required Audit? 

Audit obligations are not always obvious. A growing workforce, expanded eligibility, or overlooked former employees can change your filing requirements quickly. 

Early preparation reduces stress, prevents compliance missteps, and keeps your Form 5500 filing on track. 

If you would prefer to review your plan’s status directly with a specialist, our Employee Benefit Plan Audit team can help you confirm requirements and outline next steps.